Ford Motor Company (F)
Q3 2008 Earnings Call Transcript
November 7, 2008 9:00 a.m. ET

Executives

Lillian Etzkorn - Director, Investor Relations
Alan Mulally - President and Chief Executive Officer
Lewis Booth - Chief Financial Officer
K. R. Kent - Ford Motor Credit Vice Chairman and Chief Financial Officer
Neil Schloss - Vice President and Treasurer
Peter Daniel – Senior Vice President and Controller

Analysts

John Murphy - Merrill Lynch
Christopher Ceraso - Credit Suisse
Himanshu Patel - JP Morgan
Rod Lache - Deutsche Bank Securities
Brian Johnson - Barclays Capital
Itay Michaeli - Citigroup
Douglas Carson - Banc of America
Patrick Archambault - Goldman Sachs
Bryce Hoffman – The Detroit News
Jeff Bennett - Dow Jones Newswires
Bill Koenig – Bloomberg News
Amy Wilson - Automotive News
Sarah Webster – The Detroit Free Press
Paul Eisenstein – The Detroit Bureau
David Bailey – Reuters
Joann Muller – Forbes Magazine

Presentation

Operator

Good day ladies and gentlemen and welcome to the Ford Motor Company third quarter earnings conference call. My name is Katina and I will be your coordinator for today. (Operator Instructions) At this time all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this presentation. You may press “*1” on your touchtone telephone any time to participate. If at any time during this call you require assistance please key * followed by 0 and a coordinator will be happy to assist you. As a reminder this conference is being recorded for replay purposes. I would now like to turn the presentation over to our host for today’s call, Miss Lillian Etzkorn, Director of Investor Relations. Please proceed.

Lillian Etzkorn – Director of Investor Relations

Thank you, Katina and good morning ladies and gentlemen. Welcome to all of you who are joining us either by phone or webcast. On behalf of the entire Ford management team, I would like to thank you for spending time with us this morning.

With me this morning are Alan Mulally, President and CEO, and Lewis Booth, Chief Financial Officer. Also in the room are Peter Daniel, Senior Vice President and Controller, Neil Schloss, Vice President and Treasurer, Mark Hoffman, Director of Accounting; and K. R. Kent, Ford Credit, CFO.

Before we begin, I would like to review a couple of quick items. Copies of this morning’s earnings release and the slides that we will be using today have been posted on Ford’s Investor and Media web site for your reference. The financial results discussed herein are presented on a preliminary basis. Final data will be included in our Form 10-Q for the third quarter. Additionally the financial results presented here are on a GAAP basis, and in some cases on a non-GAAP basis. The non-GAAP financial measures discussed in this call are reconciled to their GAAP equivalent as part of the appendix to the slide deck. Finally, today’s presentation includes some forward-looking statements about our expectations for Ford’s future performance. Actual results could differ materially from those suggested by our comments here. Additional information about the factors that could affect future results, are summarized at the end of this presentation. These risk factors are also detailed in our SEC filings, including our annual, quarterly, and current reports to the SEC.

With that, I would like to turn the presentation over to Alan Mulally, Ford’s President and CEO.

Alan Mulally – President and Chief Executive Officer

Thank you, Lily and Good morning. As you all know, the global auto industry is facing unprecedented challenges. The turbulence in the worldwide economy continues to undermine consumer confidence and impact our business, as do the tight credit markets. In the U.S., October marked the lowest industry sales rate in 25 years. Vehicle demand is down substantially in Europe and in Asia as well. While Ford has been dramatically affected by the difficult business environment, we remain absolutely convinced that we have the right plan and are taking the right actions to weather this difficult period and emerge as a lean, globally-integrated company poised for long-term, profitable growth.

In these challenging times our plan is more important than ever, aggressively restructure the business, accelerate the development of vehicles people want and need, finance our plan and improve our balance sheet; and work together as one team, leveraging our global assets. While the third quarter was extremely difficult, we continue to show progress against our plan. Among the highlights for Ford in the third quarter was the launch of the new Ford F-150 in North America and the Ford Fiesta in Europe, which will be the first of Ford’s new global small cars. I will start off today by providing you with an overview of last quarter’s results and our recent accomplishments. Lewis Booth, our new Chief Financial Officer, will take us through the details and provide an outlook for the rest of 2008. I will then detail the significant actions we are announcing today to reduce our cost structure, preserve cash, and manage our business with absolute discipline.

While these actions are difficult, they are absolutely necessary to ensure we have the liquidity necessary to execute our plan to transform Ford into a profitably growing enterprise for all of our stakeholders. Turning to slide 3, I will review the key financial results for the third quarter. As shown at the top of the slide, vehicle wholesales last quarter were about 1.2 million units, down 313,000 from the same period in 2007. Ford’s third quarter revenue was $32.1 billion, down $9.0 billion from a year ago. The decline reflects lower volume, the sale of Jaguar Land Rover, unfavorable product mix, and lower net pricing, partly offset by favorable changes in the currency exchange rates. Ford’s third quarter pre-tax operating loss from continued operations, excluding special items, was $2.7 billion, over $2.9 billion worse than a year ago. This reduction included $2.5 billion in automotive and about $400.0 million at financial services.

Our third quarter net loss was $129.0 million, including over $2.2 billion of favorable pre-tax special items, more than explained by the retiree health care curtailment gain related to the VEBA agreement with the UAW. This will be discussed in more detail by Lewis. We ended the quarter with $18.9 billion of cash and we will discuss this further in detail.

Turning to slide 4, North American incurred an operating loss of $2.6 billion during the third quarter. This loss was about $1.6 billion worse than 2007, more than explained by lower volume and unfavorable production mix. We saw continued strong performance from Ford South America, with an operating profit of $480.0 million, up from $386.0 million a year ago. Ford Europe profitability is down versus a year ago, reflecting declining economic conditions. Volvo incurred a $458.0 million operating loss, compared with a loss of $167.0 million a year ago. This decline was more than explained by unfavorable volume and mix and exchange. Ford Asia-Pacific, Africa, and Mazda were each about even. Financial Services had $159.0 million operating profit.

Overall, we reduced our cost by $300.0 million despite commodity cost increases of more than $1.0 billion. North America remains on track to achieve or exceed our $5.0 billion cost reduction goal by the end of 2008 compared with 2005. As you can see on slide 5, we launched two new vehicles during the last quarter. The new 2009 Ford F-150 full-size pickup was launched in North America, the number-one-selling truck in America for 31 years running with best-in-class capability and unsurpassed fuel economy. In Europe we launched the new Ford Fiesta, the first of Ford’s new global small cars. Production began in Cologne, Germany, and the car is now going on sale in Europe. Fiesta also is beginning to now go on sale in Asia and will be introduced in North America in early 2010.